On 25 May 2016, the European Commission published a draft new Regulation which will prohibit geo-blocking and various related acts by traders which discriminate by reference to nationality or country of residence or establishment within the EU. The scope of the proposed Regulation is broad and would prevent geo-blocking and discrimination in pricing, sales or payment conditions for online sales.
Geo-blocking is an important focus area of both the Commission's E-commerce competition law sector enquiry and the Commission's Digital Single Market project ("DSM"). The broad purpose of the DSM is to remove barriers to online trade within the EU and so strengthen the Single Market. Geo-blocking is the practice of blocking access to websites from customers located outside a particular jurisdiction or of rerouting customers to a different website.
The current draft Regulation tackles unilateral geo-blocking and related acts by traders. Meanwhile the Commission's E-commerce sector enquiry is focusing on contractual geo-blocking obligations.
The draft Regulation is part of an e-commerce package within the DSM project that also comprises three other pieces of draft legislation announced at the same time, on audio-visual media rules, cross-border parcel delivery services, and consumer protection.
The draft Geo-blocking Regulation
The draft Geo-blocking Regulation targets unilateral behaviour of companies which is in some way discriminatory on the basis of where a person is from, where they live or where a business is established. It is worth noting that as part of its E-commerce sector enquiry the European Commission is also considering agreements which have the same effect (for example, prohibitions in distribution agreement intended to segment markets on national lines), but such agreements are caught by the EU competition law rules and that is the lens through which the European Commission is studying those agreements. The Commission is expected to publish its preliminary report next month, addressing the competition issues concerning contractual terms requiring geo-blocking. Unilateral behaviour (by non-dominant companies) is not caught by competition law, and so legislative action was needed (although there is some overlap in Article 6 of the draft Regulation which applies to passive sales restrictions in agreements).
Interestingly the Geo-blocking Regulation does not look at content restrictions. This appears to be a departure from what the Commission had originally planned, and perhaps reflects the controversial nature of interference with IP rights in that way.
What does the geo-blocking Regulation prohibit?
- Geo-blocking: A trader must not block or limit customers' access to online interfaces because of a customer's nationality, residence or place of establishment (note that the concept of online interfaces is actually broader than just websites although for simplicity we will refer to them as websites from now on).
- Redirecting a customer without permission: A trader must seek permission from a customer before redirecting a customer based on that customer's nationality or location. Even if the customer agrees to being redirected, the trader must make it easy to return to the website originally sought by the customer if the customer chooses to do so.
- Applying different conditions: Discrimination on the grounds of nationality/residence/place of establishment is prohibited. In essence a trader cannot use different terms and conditions for customers based in different Member States. This prohibition applies to:
It is worth noting that this provision would not prevent a trader charging extra for delivery outside a Member State where there is a clear objective justification, for example additional costs of delivering cross-border.
- sales of goods when the trader is based in a different Member State to the customer;
- all electronically-supplied services (except those providing access to copyright-protected content); and
- physical services provided at the premises of the trader or in a physical location where the trader operates provided those premises are in a different Member State to where the customer is a national, is resident or is established.
- Applying different conditions of payment: Differential treatment on the basis of nationality, residence or place of establishment of the customer, or for any reasons based on the location of the payment account or payment service provider or the country in which the payment instrument is issued, is in each case prohibited. This prohibition applies provided certain conditions (set out in Article 5) are met.
Finally, and perhaps slightly incongruously, the Regulation then moves away from unilateral behaviour and provides that any agreement which requires traders to act in violation of the Regulations in relation to passive sales (i.e. sales where the trader does not actively solicit the customer's business) is automatically void.
Are there any exceptions?
The Regulation is broad and there are few carve-outs except for where the prohibited behaviour is required by law. There are certain further exceptions, including transport services, audio-visual services, gambling activities and healthcare services. Finally certain prohibitions do not apply to traders that are exempt from VAT.